• Kraft Will Replace AIG in the Dow
    Posted by on September 18th, 2008 at 10:24 am

    Sorry, Google. The winner is Kraft.

    Kraft Foods Inc. will replace American International Group Inc. in the Dow Jones Industrial Average effective Monday, a further sign of the woes afflicting the insurance giant.
    The change comes as the federal government late Tuesday agreed to take over the troubled insurance giant in an $85 billion bailout.
    The composition of the Dow industrials was last changed in February, when Bank of America Corp. and Chevron Corp. replaced former Kraft parent Altria Group Inc. and Honeywell International Inc.
    Robert Thomson, managing editor of The Wall Street Journal and overseer of the Dow’s makeup, said not adding a financial company to replace AIG is prudent at this time “because of the extremely unsettled conditions.” He added Kraft was added because the index has no food companies.

    Kraft was effectively a member of the Dow until last year when it was spun off from Altria.

  • The Panic of 1873 Begins 135 Years Ago Today
    Posted by on September 18th, 2008 at 9:05 am

    panic1873.jpg
    On Thursday, September 18, 1873, the Panic of 1873 reached crisis proportions at 11:00am on Wall Street, when H.C. Fahnstock, the New York partner of Jay Cooke (one of the leading gold market participants), announced that Cooke’s office was closed. Cooke, in his Philadelphia office, admitted it was true, and the most prominent banker in the country was suddenly bankrupt.
    Robert Sobel, writing like Stephen King in Panic on Wall Street, said the “coal-black steed named Panic” quickly “thundered riderless down Wall Street,” where “a monstrous yell went up and seemed to literally shake the building in which all these mad brokers were for the moment confined.” Along with Jay Cooke, 37 other banks and two brokerage houses closed their doors on this date alone. In the ensuing days, the losses increased and the NYSE was forced to close down for over a week. With the situation growing dire, the secretary of the Treasury decided to infuse the economy with $26 million in paper money and the market eventually re-opened.
    Jay Cooke failed over trying to construct a second Transcontinental Railroad, but demand could not support a second line. He was merely a symbol of gross over-speculation in land and securities, followed by the issuance of too much paper money, resulting in higher inflation. (Sound familiar?) The Panic of 1873 started with a bang, as over 5000 businesses failed in the last quarter of 1873, but the Panic lingered long, as another 5,000 failed over the next five years. Panics hit America every 17 years, on average, for about a century, from 1819 to 1920 (in 1819, 1837, 1857, 1873, 1894, 1907 and 1920). The word “panic” aroused such a negative reaction (in 1894 and 1907) that Herbert Hoover invented a less threatening word for the 1929 event—connoting a small pothole in the road. Hoover called the 1929 panic “merely a depression.”
    (Via: Gary Alexander)

  • Weird
    Posted by on September 17th, 2008 at 4:25 pm

    On Monday, the S&P 500 lost -4.7136%.
    Today, the S&P 500 lost -4.7141%.

  • The Three-Month T-Bill
    Posted by on September 17th, 2008 at 2:58 pm

    At one point today, the yield on the three-month Treasury bill (^IRX) hit 0.01%!!
    One Freakin Bip!!
    This means that the risk-free rate is now in direct competition with the underside of your mattress.
    one%20freakin%20bip.png

  • The U.S. Government Now Sponsors Manchester United
    Posted by on September 17th, 2008 at 1:25 pm

    Now that the Feds own 80% of AIG, which is one of Manchester United’s largest sponsors. So our government now sponsors Man U.
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  • The Next Depression?
    Posted by on September 17th, 2008 at 12:20 pm

    Well, I’m not convinced. Here’s a look at the Dow from its 1929 peak compared with the Dow from its 2007 peak.
    image713.png

  • AIG’s Advertizing…Now with Irony
    Posted by on September 17th, 2008 at 10:35 am

    Part of the Fed’s deal is that AIG’s CEO had to go, but what happens to this kid?

  • Who Replaces AIG in the Dow? How about the Fed?
    Posted by on September 17th, 2008 at 6:48 am

    Now that AIG (AIG) is public property, I wonder who will replace the stock in the Dow Jones Industrial Average (^DJI).
    My choice: The Federal Reserve. Barring that, the Bank of China.
    Over the years, the Dow has made many adjustments, but I can’t ever recall a stock being pulled because it nearly went under. AIG was added to the index in April 2004 and from the get-go, it was a drag the Dow. In fact, the last few additions haven’t helped much.
    One word to add: The Dow is price-weighted which means that a stock’s weighting in the index is solely based on its price, no matter how many shares outstanding there are. To find out the index level, just add up the prices of the 30 stocks and adjust by a divisor (roughly multiply the sum of the stocks by eight).
    It’s an antiquated measure, but it’s got quite a nice brand name after 112 years in business. Personally, I prefer the S&P 500 (^SPX) and that’s what I use for comparisons with my Buy List.
    The last change to the Dow came in February when Bank of America (BAC) and Chevron (CVX) replaced Altria (MO) and Honeywell (HON). Since changes are pretty infrequent, I hope the gatekeepers make a few more changes along with booting AIG.
    I’d vote to remove AIG, plus Alcoa (AA) and General Motors (GM). GM is frankly an embarrassment to the index.
    So what should the new stocks be? I’d say the front-runners are Google (GOOG), Cisco (CSCO) and Apple (AAPL). Here’s a list of mega-cap stocks that aren’t currently in the Dow and their market caps (in billions).
    Google…………………………$139.3
    Cisco……………………………$134.5
    Apple…………………………..$123.9
    Wells Fargo…………………..$115.6
    Pepsi……………………………$114.2
    Philip Morris…………………..$110.8
    ConocoPhillips………………..$109.8
    Schlumberger…………………$104.2
    Oracle……………………………$97.8
    Abbott Labs…………………….$92.2
    Qualcomm……………………….$78.6
    Amgen……………………………$69.7
    UPS………………………………..$69.4
    I’d also make a case for a stock like UPS (UPS). It’s not the biggest, but its business is probably a better reflection of the larger economy than many bigger stocks.
    On a side note, little changes to the Dow can have major impacts. The editors of the Wall Street Journal changed the index in 1939 by tossing out IBM (IBM). They added it back in 1979. In those 40 years, IBM gained 22,000%. If the editors had left it in, the Dow would now be about 35% higher than where it is now. All the historical benchmarks would be different. The Dow would have cracked 1,000 in 1961 instead of twelve years later.
    Behold the power of one really good stock.

  • Is the Fed Allowed to do This?
    Posted by on September 17th, 2008 at 12:37 am

    Megan McArdle wonders what legal right the Federal Reserve has to go in the insurance business:

    It’s probable that they don’t actually have the legal right to do anything like this. Their authority is this: who’s going to stop them? No one wants to take on responsibility for this mess themselves.

    Section 13-3 of the Federal Reserve Act gives them the authority. Assuming you read it very broadly:

    In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual, partnership, or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe.

    Glad that’s all clear now.

  • Colbert: My Portfolio Consisted Of Lehman, Merrill, AIG And Lil’ Shavers
    Posted by on September 16th, 2008 at 11:44 pm